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1 Key Question Lucid Motors Didn't Answer

By Daniel Foelber - Jul 21, 2021 at 6:00AM

Key Points

  • Lucid management gave a company presentation on July 13.
  • Manufacturing capacity is increasing and customer orders are in, but the car is still not ready for mass production.
  • If Lucid fails to produce and deliver the Air Dream Edition on time, its other efforts may be in vain.

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The longer this electric vehicle company delays production, the higher expectations will be for its car to really excel.

Lucid Motors is an up-and-coming luxury electric vehicle (EV) company directly challenging Tesla as well as legacy automakers. With the stated goal to "create the very best electric car in the world," private stakeholders in the company plan to hold a vote to merge with a special purpose acquisition company (SPAC) called Churchill Capital IV (CCIV) on Thursday, July 22. If approved, the merger would give Lucid $4.4 billion in cash net of expenses, assuming there are minimal redemptions from Churchill shareholders. 

Lucid held an investor presentation on July 13 and provided a few key updates, but management failed to disclose the official date when the company's Lucid Air Dream Edition would begin production and start delivery of the electric vehicle to customers. Shares of Churchill Capital IV fell over 10% following the presentation and continue to be extremely volatile.

A Lucid Air sedan in front of a building.

Image source: Lucid Motors.

Let's break down what Lucid management said and what it didn't tell investors in its presentation and, hopefully, get a better understanding of what the company needs to do to deliver on its stated timeline.

Lucid remains stuck in pre-production

In a May presentation, Lucid management told investors it planned to begin production and customer deliveries of its Lucid Air Dream Edition (the most expensive of the four Air sedan models it is working on) starting in the second half of 2021. The company reaffirmed this forecast during its July presentation, announcing it had completed its pre-production run of 89 Lucid Airs in June. The pre-production phase is a chance to make adjustments to the vehicle before moving on to mass production. The adjustments can be related to anything from safety to internal controls to design.

The company's manufacturing facility in Casa Grande, Arizona, is ready to go with a production capacity of 34,000 units per year. That's more than enough to meet the estimate of 20,000 vehicles that the company hopes to produce in 2022. 

Understanding the importance of brand

The only thing that seems to be holding Lucid back from starting production is the technology itself. The pre-production run remains ongoing as Lucid continues to make adjustments. CEO Peter Rawlinson recognizes the company's entire reputation hinges on the rollout of its first car. In last week's presentation, he said: 

The product is the essential foundation for the brand. I believe that product defines brands more than brand defines product. And so, our first product simply has to be the best. That is the objective, pure and simple. [The Lucid Air Dream Edition] will define Lucid as a brand, and it's truly a fusion of art, science, and really exploring the limits of what's possible with electrification.

At face value, Lucid's inability to make meaningful progress on its Lucid Air rollout is a bad look. However, Rawlinson makes a good point. Releasing a well-received car could help the company open the door to more product reservations, word-of-mouth publicity, and potentially more funding. A flop could mean a lull in reservations and the need for more advertising to reestablish the brand.

As a new company, Lucid needs to focus the bulk of its efforts on making cars, not fixing buggy ones. The company's battery pack, motor and transmission, inverter, bidirectional charging, and software are all developed in-house. And since it's a new car, there's no aftermarket or third-party support out there to fix it. Therefore, Lucid will have to deal with customer problems entirely on its own. Mass producing the Dream Edition prematurely would be a disaster that could cause the company delays and evaporate much-needed cash.

The bottom line

Lucid Motors is new to the luxury EV market. But it has a rich and successful history in producing battery technology for other original equipment manufacturers (OEMs). Its competitive edge is the range and performance of its car, not its manufacturing expertise. The Dream Edition sports an impressive 503 miles of EPA-rated range, 1,080 horsepower, and can go zero to 60 mph in less than 2.5 seconds. If successful, it would become one of the first EVs with a range above 500 miles. There's little doubt that Lucid has accomplished an impressive feat when it comes to technology. However, the growth company remains entirely unproven in its ability to successfully scale its vehicles, as well as show meaningful progress in a path toward profitability.

In a perfect world, Lucid would be well on its way to filling orders. Production uncertainty is annoying, but it shouldn't take away from the big picture. If a few more months of fine-tuning produces a better car, then it's well worth the wait. However, the longer Lucid stalls, the higher the expectations will be for its car to really excel.

Daniel Foelber owns shares of Churchill Capital Corp IV and has the following options: short January 2022 $40 calls on Churchill Capital Corp IV, short July 30 2021 $30 calls on Churchill Capital Corp IV, and short September 2021 $30 calls on Churchill Capital Corp IV. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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